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Thursday, 12 December 2019

Analysis: Political costs of the Iranian protests

Iranian President Hassan Rouhani is attempting to strike a balance between the demands of protesters that have taken to the streets of cities across the country and the needs of its regional allies, writes Manal Lotfy

Manal Lotfy , Thursday 21 Nov 2019
Political costs of the Iranian protests
Iranian protesters rally amid burning tires during a demonstration against an increase in gasoline prices, in the central city of Isfahan (photo: AFP)
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“Not Gaza, not Lebanon, I give my life for Iran.” “Leave Iraq and think of us.” “Leave Syria and think of us.” These were some of the chants made by the thousands of Iranians who took to the streets of towns and cities across the country this week in mass protests against a 50 per cent increase in fuel prices.

The demonstrations are a dangerous sign of what is to come. The United States is not expected to ease its sanctions on Iran, and thus far the EU has failed to find an alternative mechanism that would enable Iran to sell its oil on the world market circumventing the sanctions.

According to the International Monetary Fund (IMF), Iran’s economy is on track to contract by 9.5 per cent this year. Oil sales have been gutted, and the national currency the riyal lost more than 60 per cent of its value last year and has only partially recovered.

Iranian President Hassan Rouhani, who pushed for the hike in prices as part of a promise to increase payments to Iran’s poor, said that “we have no other choice but to either raise taxes and make payments... or we must export more oil” in response to the demonstrations.

He also warned that the authorities could track the protesters by their car license plates. During the unrest, some demonstrators abandoned their cars on major highways, blocking the traffic.

In a meeting with the cabinet, Rouhani linked the fuel-price hike to Iran’s inability to export its crude oil abroad, according to a statement on the presidency website.

A former Iranian official said the government had had no choice but to raise the prices, but he blamed Rouhani’s government for not explaining the move better to the public.

“If the government had explained the reasons for the decision and its repercussion on the citizens of Iran, the reaction would have been calmer,” the former minister in former Iranian president Mohamed Khatami’s government told Al-Ahram Weekly.

“As a former government minister, I understand the reasons behind the decision. Petrol prices in Iran are among the cheapest in the world and cost the budget billions of dollars annually. The budget deficit needs to be resolved, but the US sanctions on Iran are hampering the government’s ability to address the budget deficit,” he argued.

“On the other hand, about 10 million litres of petrol are being smuggled per day from Iran to neighbouring countries such as Pakistan and Armenia. In other words, the state in Iran is spending billions to subsidise petrol to be smuggled on the black market to other countries. This cannot be right,” he said.

According to the government plans, the 50 per cent increase in petrol prices would yield revenues for the state coffers of about $2.5 billion. The Rouhani government has announced that it will distribute the proceeds to millions of poor families in Iran who do not benefit from the fuel subsidies because they do not own cars and have suffered from the decline in government subsidies over recent years.

The fuel subsidies drain the country’s wealth but mainly benefit those who have cars. The richest 10 per cent of the Iranian population benefits from the subsidies 11 times more than the poorest ten per cent, according to experts.

Some 78 million of Iran’s 83 million population receive government cash handouts of around 455,000 riyals ($10.8) a month under a programme launched in 2010 by former populist president Mahmoud Ahmadinejad. But government coffers have been squeezed because of the US sanctions since.

Mohamed Baqer Nobakht, head of Iran’s Planning and Budget Organisation, has said that the country’s oil revenues will fund only 10 per cent of the budget for the next Iranian fiscal year starting on 21 March 2020 and that this is earmarked for infrastructure projects.

To offset the loss of revenue, the government plans to rein in visible and hidden subsidies totalling 13 quadrillion riyals ($309 billion), he said. Tax reforms were also under consideration, he said, including eliminating the tax-exempt status for some entities and introducing new taxes on capital gains and empty homes.

Cheap petrol is considered almost a birthright in Iran, home to the world’s fourth-largest crude oil reserves despite decades of economic woes since the 1979 Islamic Revolution.

Petrol in the country remains among the cheapest in the world, with the new prices jumping 50 per cent to a minimum of 15,000 riyals per litre. That is still only 12 US cents a litre, or about 50 cents a gallon. A gallon of regular gasoline in the US costs $2.59 by comparison.

The International Energy Agency estimates that Iran spent more than any other nation in the world to subsidise fossil fuels in 2018 at $69 billion in total. Over $26 billion went towards fuel subsidies, it said.

Yet, petrol supplies are always insufficient in Iran because of the lack of refining capacity due to the US sanctions and because over ten million litres of petrol are smuggled out of Iran on a daily basis. This adds up to 3.65 billion litres every year, according to some estimates.

Last year, an Iranian government spokesman said everyday 11.5 million litres of petrol were smuggled out of Iran.

The price of one litre of petrol in Iran was about eight US cents last year, while the price in Turkey, Turkmenistan, Azerbaijan, Pakistan, Iraq, Afghanistan and Armenia was at least $1.23. This means that every litre of smuggled fuel brings in a profit of more than one US dollar.

The devaluation of the Iranian currency over the past year has made petrol at least three times cheaper in dollar prices, making smuggling an even more profitable venture.

The current protests in Iran come as demonstrations have also struck Iraq and Lebanon, two nations key to Iran’s regional influence.

It is thus a difficult time for Iran, and although the demonstrators want the authorities to end their funding of Iran’s regional allies, such as the Popular Mobilisation Force (PMF) in Iraq, the Ansar Allah (Houthis) in Yemen, Hizbullah in Lebanon and the Syrian government, in order to better meet the demands of the Iranian people, the Iranian government does not see things as a choice between internal and external priorities.

According to Iran’s national security doctrine since the war with Iraq (1980-1988), Iran’s borders are not just physical geographical borders, but are strategic borders based on a flexible geography. According to this logic, Iran’s national interests can also be protected in southern Lebanon, south-western Syria, southern Iraq or northern Yemen.

The financial flow will thus likely continue to Iran’s allies in Yemen, Iraq, Syria and Lebanon.

According to a study by the International Institute for Strategic Studies (IISS) in London published last week, “expenditures in the Iraq, Syria and Yemen conflicts are estimated to have cost the Iranian economy as much as $16 billion. These costs are in addition to as much as $700 million reportedly paid annually to Lebanese Hizbullah, as well as millions of dollars to various Palestinian militants…The strain of such expenditures on Iran’s flagging economy has been considerable, although the impact has been eased by the fact that the cost has been spread over more than eight years.”

In the view of Iran’s leadership, this is a cost worth paying.

Ayatollah Ahmad Alam Al-Hoda, the Iranian supreme leader’s representative in the Iranian Khorasan Razavi province, said recently that “the Iran of today does not have the geographical constraints of the past. Today Iran is also the PMF of Iraq, Lebanon’s Hizbullah, Ansar Allah in Yemen, Syria’s National Front and the Palestinian Islamic Jihad and Hamas. All of these have come to represent Iran, and therefore Iran is no longer just us.”

Meanwhile, the true scale of the protests in Iran is unknown after the government shut down the Internet in the country over the weekend, blocking Iranians from sharing videos and information with the outside world.

But shutting down the Internet is a sign that the protests represent a political risk for Rouhani’s government ahead of the February parliamentary elections as it struggles to keep the economy afloat in the meantime.

 

*A version of this article appears in print in the 21 November, 2019 edition of Al-Ahram Weekly.

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